Proposed Changes to the Estate, Gift, and GST Taxes Included in the Tax Cuts and Jobs Act

November 3, 2017

On November 2, the House Ways and Means Committee released the Tax Cuts and Jobs Act (H.R. 1) to overhaul major aspects of the US tax system. The bill is widely seen as the beginning of an ongoing negotiation. Chairman Kevin Brady has already released a chairman’s mark that incorporates feedback from members. The bill is scheduled for committee markup on November 6. In addition, the Senate Finance Committee is working on its own tax reform plan.

Of note with respect to the estate, gift, and generation-skipping transfer taxes are the following provisions of the proposed legislation:

  • The bill doubles the exemption from the estate tax from $5 million to $10 million (adjusted for inflation from 2011) and repeals the estate tax completely on January 1, 2024.
  • The bill also includes the basic exclusion amount for gift and generation-skipping transfers to $10 million (adjusted for inflation).
  • The bill eliminates the estate tax for decedents dying after December 31, 2023. The generation-skipping transfer tax is also eliminated for transfers after December 31, 2023.
  • Estate, gift, and generation-skipping transfers made on or before December 31, 2023 are still subject to a maximum tax rate of 40% (no change in rates).
  • The bill does not eliminate the gift tax. Gifts made after December 31, 2023 would be subject to a maximum gift tax rate of 35% (reduced from the current maximum rate of 40%).
  • Under the bill, the basis step up under section 1014 for property received from a decedent at death is retained even after the estate and generation skipping transfer taxes are repealed.

In addition to these transfer tax provisions, the 429-page bill eliminates the deduction for state and local taxes, with a limited exception for state and local property taxes up to $10,000. The bill cuts the corporate tax rate to 20%. It also applies a 25% rate to business income earned by owners and shareholders of certain pass-through entities. The bill adopts a territorial system of international taxation, an immediate tax on existing retained offshore earnings, a new tax on foreign subsidiary high returns, a new excise tax on certain payments from US companies to related foreign companies and new thin capitalization rules.

Please contact us if you would like further details on any of the provisions of the tax bill and how they may affect your current estate plan.